VW has struck a deal over its emissions-cheating scandal and it could cost over $10 billion

AP

Volkswagen has struck a deal with the US government over the diesel-emissions-cheating scandal that has plagued the car maker.

Under the terms of the agreement, Volkswagen would include 'substantial compensation' to owners of VW's diesel vehicles, and would establish an environmental compensation fund.

U.S. Judge Charles Breyer said the settlement is expected to include a buyback offer for nearly 500,000 2.0-liter vehicles and a possible fix if regulators agree on it. The settlement will include an environmental remediation fund and additional compensation to owners to sell back or have vehicles fixed.

Bloomberg reported that the deal "will cost at least $10 billion," citing a
person with direct knowledge of the matter.

Buybacks for recall-related problems are rare in the auto industry — automakers prefer to come up with a mechanical or technological fix — but VW has struggled to resolve the diesel-emissions flaws in its cars and has seen its US sales plummet at a time when the industry is booming.

Regulators and prosecutors around the world are investigating the German company after it admitted in September to installing software in its cars to cheat exhaust emissions tests, unleashing a scandal dubbed Dieselgate in the media.

Analysts and shareholders applauded the prospect of a deal, sending VW shares up 6.4 percent to 128.6 euros per share on Germany's blue-chip DAX index.

"We welcome the fact that VW appears to be pursuing a broad compensation program," said Arndt Ellinghorst, analyst at Evercore ISI.

Two people familiar with the matter said on Wednesday that Volkswagen would raise its provisions to a double-digit billion euro amount from 6.7 billion euros to pay for the buyback and regulatory issues.

Evercore ISI estimates that the costs for cleaning up Dieselgate will reach 11.4 billion euros ($12.9 billion).